This document provides an overview of the Indian capital market, including its key components and structure. It discusses the formal and informal financial systems in India and the various regulators. It then describes the major types of financial institutions and instruments that operate in the capital market. The document outlines the primary and secondary markets, including how securities are issued and traded. It provides details on stock exchanges, indices, listing requirements, and the process of dematerializing shares.

1. Introduction to CAPITAL MARKET

2. 2
Indian
Financial
System
Formal
(organized
Financial
system)
Regulators;
MoF, SEBI,
RBI, IRDA
Financial
Institutions
(Intermediaries)
Financial
Markets
Financial
Instrument
Financial
Services
Informal
(Unorganized
financial
system)
Money lenders,
Local bankers,
Traders
Financial system

3. Financial Institutions
3
Financial
Institutions
(Intermediaries)
Banking
Institutions
Non-Banking
Institutions
Mutual Funds
Public sector Private Sector
Insurance
and
Housing
Finance companies

4. Financial Instruments
Financial
Instruments
Primary
Securities
Equity,
Preference
shares, Debt
Secondary
Securities
Time deposits,
MF units
Insurance policies

5. Financial Markets
5
Financial
Markets
Capital Market Money Market
Primary Segment
Secondary
Segment

6. CAPITAL MARKET
 The market where investment instruments like
bonds, equities and mortgages are traded is
known as the capital market.
 The prime role of this market is to make
investment from investors who have surplus funds
to the ones who are running a deficit.

7.  The different types of financial instruments
that are traded in the capital markets are:
> equity instruments
> credit market instruments,
> insurance instruments,
> foreign exchange instruments,
> hybrid instruments and
> derivative instruments.

8. Nature of capital market
The nature of capital market is brought out by the following
facts:
 It Has Two Segments
 It Deals In Long-Term Securities
 It Performs Trade-off Function
 It Creates Dispersion In Business Ownership
 It Helps In Capital Formation
 It Helps In Creating Liquidity

9. Types of capital market
There are two types of capital market:
 Primary market,
 Secondary market

10. Primary Market
 It is that market in which shares, debentures and other
securities are sold for the first time for collecting long-
term capital.
 This market is concerned with new issues. Therefore,
the primary market is also called NEW ISSUE MARKET.
 In this market, the flow of funds is from savers to
borrowers (industries), hence, it helps directly in the
capital formation of the country.
 The money collected from this market is generally used
by the companies to modernize the plant, machinery and
buildings, for extending business, and for setting up new
business unit.

11. Features of Primary Market
 It Is Related With New Issues
 It Has No Particular Place
 It Has Various Methods to Float Capital: Following are
the methods of raising capital in the primary market:
i) Public Issue
ii) Offer For Sale
iii) Private Placement
iv) Right Issue
v) Electronic-Initial Public Offer

12. Pricing of issues
 Companies eligible to make public
issue can freely price their equity
shares or any security.
 Fixed Price
 Book Building
www.pptmart.com

13. Fixed Price
 In the fixed-price issue method, the issuer fixes the
issue price well before the actual issue. For this
very reason, it is cautious and conservative in
pricing the issue so that the issue is fully
subscribed. Underwriters also do not like the issue
to devolve on them and hence favour conservative
pricing of the issue. For these practical reasons,
the issue price in the case of traditional fixed price
method generally errs on the lower side and,
therefore, in the investor’s favour.

14. Book building
 Book-building is a process of price discovery used
in public offers. The issuer sets a floor price and a
band within which the investor is allowed to bid for
shares.
 The upper price of the band can be a maximum of
1.2 times the floor price.
 The investor had to bid for a quantity of shares he
wished to subscribe to within this band.

15. Private placement
 It involves issues of securities to a limited number of
subscribers, such as banks, FIs, MFs and high net worth
individual.
 It is arranged through a merchant banker, an agent of
issuers, who brings together the issuers and investor(s).
 Securities offered are exempt from public disclosers
regulations and registration requirements of the regulatory
body.
 This market is preferred by small and medium size firms,
particularly new entrants who do not have track record of
performance.

16. Secondary Market
 The secondary market is that market in which the
buying and selling of the previously issued
securities is done.
 The transactions of the secondary market are
generally done through the medium of stock
exchange.
 The chief purpose of the secondary market is to
create liquidity in securities.

17. WHAT IS A STOCK EXCHANGE ?
 A market in which securities are bought and sold: "the
company was floated on the Stock Exchange".
 The initial offering of stocks and bonds to investors is by
definition done in the primary market and subsequent
trading is done in the secondary market.
 A stock exchange is often the most important component
of a stock market.

18. SOME INDIAN STOCK EXCHANGES
EXCHANGE
BOMBAY STOCK EXCHANGE
NATIONAL STOCK EXCHANGE
JAIPUR STOCK EXCHANGE
UP STOCK EXCHANGE ASSOCIATION
MADRAS STOCK EXCHANGE
COCHIN STOCK EXCHANGE
BANGLORE STOCK EXCHANGE
GAUHATI STOCK EXCHANGE
LUDHIANA STOCK EXCHANGE
CALCUTTA STOCK EXCHANGE
LOCATION
MUMBAI
MUMBAI
JAIPUR
KANPUR
CHENNAI
COCHIN
BENGULURU
GAUHATHI
LUDHIANA
KOLKATA
NSE AND BSE ARE THE MAJOR STOCK EXCHANGES IN INDIA.

19. Indices
 Stock market indices shows the movement
of stocks in particular markets
 Main Indian indices are BSE SENSEX, NSE
NIFTY etc.

20. Listing
 Companies have to list their stock in exchanges
for participating in the markets
 Three years track record
 50 Crores Net worth
 Minimum paid of 10 crore

21. DEMATERIALISATION OF SHARES
 Trading in the shares of the Company is
compulsory in dematerialized form for all
investors.
 The Company has, therefore, enlisted its
shares with both the depositories, viz,
National Securities Depository Limited
(NSDL) and Central Depository Services
India Limited (CDSL).

22. Depository
 A Depository (NSDL & CDSL) is an organisation like
a Central Bank where the securities of a
shareholder are held in the electronic form at the
request of the shareholder through the medium of
a Depository Participant.

23. Depository Participant?
 A Depository Participant (DP) is your
representative (agent) in the depository system
providing the link between the Company and you
through the Depository.
 While the Depository can be compared to a Bank,
DP is like a branch of your bank with whom you
can have an account.
 According to SEBI guidelines, Financial Institutions
like banks, stockbrokers etc. can become
participants in the depository.

24. Stock trading
 Requirements: Bank account, Demat
account, Broker, Balance in the account
 Procedures: Placing order through online
 Components: Exchange, Name of the
company, Price Quantity

25.  Order book looks like this

26. By
Suhail Palakkod
Kottakkal, Kerala